Strategic Value Partners Seeks $1B for Third Distressed Debt Fund

LBO Wire ,

Laura Kreutzer,

October 15, 2013,

(c) 2013 Dow Jones & Company, Inc.

Strategic Value Partners, the distressed debt manager founded by Victor Khosla, a former executive of Merrill Lynch, is pitching its third private equity fund focused on distressed debt and turnaround deals, said a person familiar with the offering.

The firm aims to raise $1 billion for Strategic Value Special Situations Fund III LP, slightly more than the $918 million it collected for its second fund which wrapped up just last year. SVP has invested 72% of Fund II, this person said. The firm collected $346 million for its first restructuring and distressed debt fund in 2009.

SVP plans to focus the fund on investments in debt securities of middle market companies, namely ones with enterprise values of less than $1.5 billion, this person added. The firm also plans to devote a significant portion of its assets in Europe as more European banks shed commercial credit from their balance sheets. European deals figured into the prior fund's strategy, too.

In 2012, for example, SVP took over German plastic film maker Klockner Pentaplast Group from New York-based Blackstone Group. In May, Klockner Pentaplast recapitalized its balance sheet, effectively returning all of the new money that SVP and its co-investors invested in the company in June 2012, according to a news release issued at the time.

SVP is one of a number of private equity firms, including Apollo Global Management, Avenue Capital Group, Oaktree Capital Management and Varde Partners, betting the European banks will continue to shed non-core assets, particularly corporate credits. In a report published earlier this year, PriceWaterHouse Coopers predicts that sales of non-core debt assets by European financial institutions will rise to 60 billion euros this year from EUR46 billion in 2012.

Mr. Khosla launched SVP in 2001 and since then has expanded the firm to 35 investment professionals, according to SVP's website. In fall 2012, the firm hired Stephen McGuinness, a retired Goldman Sachs Group Inc. banker, to raise money from institutional investors and improve the firm's operations, the Wall Street Journal reported at the time. Before retiring from Goldman, Mr. McGuinness co-headed the bank's special situations group, which made credit and distressed investments off of Goldman's own balance sheet.

In addition to its Greenwich, Conn., headquarters, SVP has offices in London, Frankfurt and Tokyo.